So far, it just about fits the prescription

For Big Pharma, this is a period of unprecedented difficulty, a time to retrospect on past failures. However, Indian generic firms are bang in the middle of a potential dream run. As a recent Frost & Sullivan report points out, drugs worth around $150 billion are expected to go off patent protection globally. This naturally opens a huge window of opportunities for Indian drug manufacturers. Are they ready?

Profitability figures certainly suggest that some players are moving away from the shadow of a difficult past in the latter part of the previous decade. Sun Pharma, which has got the highest number of drugs in its Abbreviated New Drug Application (ANDA) pipeline, reported revenues of Rs 40.15 billion, a growth of 29.3 per cent year on year (yoy). Its net profit stood at Rs 19.27 billion, growing by 39 per cent yoy. The US business of Sun Pharma alone grew by nearly per cent in the same period. Cipla’s profit rose by 16 per cent yoy to reach Rs 11.23 billion in FY 2011-12. Dr. Reddy’s Laboratories, which has just entered the BSE-30, also reported a healthy 28 per cent rise in topline in the fiscal to reach Rs 67.39 billion. Its net profit, however, grew by just 2.1 per cent yoy to Rs 9.12 billion. The company was stung by the poor performance of its generic version of Zyprexa and falling margins in its core business. Contrarily, launches of generic versions of Caudet and Zyprexa have helped Lupin. It managed double digit growth in the US. However, its PAT for FY 2011-12 shrank nominally and stood at Rs 8.04 billion owing to high depreciation and interest costs. The BSE Healthcare Index surged by around 5.6 per cent yoy and has outperformed the Sensex by around 14 percentage points.

In 2010 and 2011, companies like Glenmark, Aurobindo and Sun Pharma were able to further consolidate their positions in the US generics market by bagging around 33 per cent of ANDA approvals from the US Food and Drug Administration (FDA). The FDA approved a 2,244 ANDAs between 2007 and 2011, of which Indian companies grabbed final approval for 694. Considering the intense competition from their BRICS counterparts, the figure holds high significance. During the same period, aggregate tentative approvals by FDA reached 518, out of which Indian companies secured 200 (FDA data).

Also, Indian companies are consistently growing their para IV filings and niche complex chemistry molecules. Most of these segments, especially injectables, inhalers, ophthalmic, oral contraceptives and controlled release products are set to lose patent guard beyond 2012. Moreover, being characterised by complex manufacturing techniques, entailing greater investments in R&D and manufacturing, these segments have higher entry barriers and thereby potential for higher profitability. Also, the percentage of US FDA approvals won by Indian firms has jumped from 27 per cent to 33 per cent.

Raghavendra Saha, Senior Advisor, CII asserts, “In the past 15 years, not even a single new molecule has been found. Hence, it is not hard to claim that the era of blockbuster drugs has gone and the future belongs to generics.”
However, Indian companies need to manage their litigation processes well, since this led to massive cost escalations in the past, particularly with Ranbaxy Laboratories (incidentally, the Daiichi Sankyo-owned company declared a loss of Rs 30.52 billion for the nine months ending December 2011, as per its most recent report). Dr  Kamal Kumar Sharma, MD, Lupin Ltd says, “At Lupin, we do not chase any and everything possible. We try to sort out and identify cases where we have a decent chance of winning.”

Indian companies have to also brace themselves for the fact that the patent expiries are expected to peak in 2012, though their product pipeline will stay robust till 2014 (ICRA report). Apart from this, “Indian players remain very small as compared to global counterparts like Teva, Mylan and Sandoz. The sheer scale of these entities gives them an edge in the generics business”, says Rakesh Mehta, Renior Analyst, Fullerton Securities. To add to that, the space for ANDA filings is getting increasingly crowded, so these players would do well to be selective, and where possible, enhance their expertise in niche areas. This is even more critical from the branding perspective. As Dr Ramesh Krishnamurti, Head, Corporate Patents, Novo Nordisk India, asserts, “Sometimes, it is difficult to attract consumers to generic drugs due to their loyalty to an established brand ."

As Indian companies switch to complex chemical products, they face a lack of skilled human resources and technical know-how. Hence, the way forward is intelligent IP collaborations, which can help to fill in the skill gap and bring more opportunity. Due to compulsions of accelerated new drug development for Big Pharma, CRAMs (Contract Research & Manufacturing Services) for prescription drugs remains a huge opportunity globally, estimated at $90-105 billion by the Tufts Center for the Study of Drug Development. Indian companies like Biocon, Jubilant and Syngene are already making inroads, and more Indian firms must take this route.